New welfare has been prominent in recent European social policy debates. It involves mobilising more people into paid work, improving human capital and ensuring fairer access to opportunities. This programme is attractive to business (more workers, better human capital and reduced social conflict to enhance productivity and profitability) and to citizens (more widely accessible job-opportunities with better rewards): a relatively low-cost approach to the difficulties governments face in maintaining support and meeting social goals as inequalities widen.

The general move towards ‘new welfare’ gathered momentum during the past two decades, given extra impetus by the 2007–09 recession and subsequent stagnation. While employment rates rose during the prosperous years before the crisis, there was no commensurate reduction in poverty. Over the same period the share of economic growth returned to labour fell, labour markets were increasingly de-regulated and inequality increased. This raises the question of whether new welfare's economic goals (higher employment, improved human capital) and social goals (better job quality and incomes) may come into conflict.

This paper examines data for seventeen European countries over the period 2001 to 2007. It shows that new welfare is much more successful at achieving higher employment than at reducing poverty, even during prosperity, and that the approach pays insufficient attention to structural factors, such as the falling wage share, and to institutional issues, such as labour market deregulation.